How to Prepare for a VARA Compliance Audit

The Virtual Assets Regulatory Authority (VARA) is the competent entity in charge of regulating, supervising, and overseeing all virtual assets activities in the Emirate of Dubai. VARA has issued a comprehensive regulatory framework that includes compulsory rulebooks for all virtual assets service providers (VASPs), as well as specific ones for each virtual asset activity. 

One of the compulsory rulebooks is the Compliance and Risk Management Rulebook (CRM), which sets out the requirements for VASPs to establish and maintain effective compliance and risk management programs. The CRM covers various aspects such as governance, policies and procedures, internal controls, risk assessment, monitoring and testing, reporting, and record-keeping. 

VASPs operating in Dubai will be subject to increased regulatory scrutiny and oversight as a result of the CRM. VARA will monitor VASPs to ensure that they comply with the CRM’s requirements and may conduct regular inspections and audits to assess compliance. Therefore, it is essential for VASPs to prepare for a VARA compliance audit and demonstrate that they have implemented effective policies, procedures, and controls to meet the regulatory standards.

What is a VARA Compliance Audit?

A VARA compliance audit is a process of verifying and evaluating the compliance of a VASP with the Regulations and the applicable rulebooks. A VARA compliance audit may be conducted by VARA itself or by an external auditor appointed by VARA.

The purpose of a VARA compliance audit is to:

• Ensure that the VASP is operating in accordance with the Regulations and the applicable rulebooks;
• Identify any deficiencies or weaknesses in the VASP’s compliance program and recommend corrective actions;
• Enhance the VASP’s awareness and understanding of the regulatory requirements and expectations;
• Promote a culture of compliance and good governance within the VASP.

What are the Key Areas of a VARA Compliance Audit?

A VARA compliance audit will cover the following key areas of the Regulations and the applicable rulebooks:

• Company: The VASP’s legal structure, ownership, governance, management, and financial resources;
• Compliance and Risk Management: The VASP’s compliance program, risk management framework, internal audit function, and reporting obligations;
• Technology and Information: The VASP’s information security, data protection, business continuity, and disaster recovery arrangements;
• Market Conduct: The VASP’s market integrity, fair dealing, disclosure, and anti-money laundering and counter-terrorism financing measures;
• Activity-Specific: The VASP’s compliance with the specific requirements for the virtual asset activity or activities that it is authorized to provide, such as advisory services, broker-dealer services, custody services, exchange services, lending and borrowing services, payments and remittances services, or management and investment services.

Benefits of Preparing for a VARA Compliance Audit

Preparing for a VARA compliance audit can bring several benefits for VASPs, such as:

• Enhancing the reputation and credibility of the VASP. 

By preparing for a VARA compliance audit, VASPs can demonstrate their commitment to complying with the regulations and maintaining high standards of compliance and risk management. This can enhance their reputation and credibility among their customers, partners, and regulators.

• Reducing the risk of penalties and sanctions.

By preparing for a VARA compliance audit, VASPs can reduce the risk of penalties and sanctions that may result from non-compliance or violations of the regulations. This can also help them avoid reputational damage and legal consequences.

• Improving the performance and efficiency of the VASP. 

By preparing for a VARA compliance audit, VASPs can improve the performance and efficiency of their compliance and risk management programs. This can also help them optimize their operations, reduce costs, and increase profitability.

How to Prepare for a VARA Compliance Audit?

The following are some steps that VASPs can take to prepare for a VARA compliance audit:

1. Review the CRM and other relevant regulations. 

VASPs should familiarize themselves with the CRM and other applicable rulebooks and laws that govern their virtual asset activities. They should also keep abreast of any updates or changes to the regulations and ensure that they are reflected in their compliance and risk management programs.

2. Conduct a self-assessment of the compliance and risk management program. 

VASPs should conduct a periodic self-assessment of their compliance and risk management program to identify any gaps, weaknesses, or areas for improvement. They should also document the results of the self-assessment and the actions taken to address the issues identified.

3. Implement corrective and preventive measures. 

VASPs should implement corrective and preventive measures to remediate any deficiencies or non-compliance issues found in the self-assessment or previous audits. They should also monitor the effectiveness of the measures and make adjustments as needed.

4. Prepare the required documentation and evidence. 

VASPs should prepare the required documentation and evidence to support their compliance and risk management program and demonstrate their adherence to the CRM. This may include policies and procedures, risk assessments, internal controls, monitoring and testing reports, compliance reports, and records of transactions and activities.

5. Cooperate with the auditors. 

VASPs should cooperate with the auditors and provide them with the necessary information and access to conduct the audit. They should also respond to any queries or requests from the auditors in a timely and accurate manner.

Conclusion

A VARA compliance audit is a key component of the regulatory framework for virtual assets in Dubai. VASPs should prepare for a VARA compliance audit by reviewing the regulations, conducting a self-assessment, implementing corrective and preventive measures, preparing the required documentation and evidence, and cooperating with the auditors from audit firms in Dubai. By doing so, VASPs can benefit from enhancing their reputation and credibility, reducing the risk of penalties and sanctions, and improving their performance and efficiency.

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